Inland Revenue Commissioners v Ayrshire Employers Mutual Insurance Association Ltd

[1946] 1 All ER 637

---

Between: Inland Revenue Commissioners
And: Ayrshire Employers Mutual Insurance Association Ltd

Court:

Judges: Lord Thankerton
Lord MacMillan
Lord Wright
Lord Simonds
Lord Uthwatt

Subject References:
taxation
Other Taxation
Income Tax
Mutual insurance association
Surplus arising from transactions with members
Whether assessable

Legislative References:
Finance Act, 1933 (c 19) - s 31(1)

Case References:
New York Life Insurance Co v Styles - (1889), 14 App Cas 381; 28 Digest 59, 300; 59 LJQB 291; 61 LT 201; sub nom Styles v New York Life Insurance Co 2 Tax Cas 460
Municipal Mutual Insurance Ltd v Hills - (1932), 147 LT 62; Digest Supp; 16 Tax Cas 430

Hearing date: 25 February 1946
Judgment date: 29 March 1946

---

The respondent association was incorporated as a company limited by guarantee. It had no share capital and its transactions were exclusively with its own members. Its purpose was to insure its members on the mutual principle against liability for injuries to their workmen. An assessment to income tax was made on the association for the year ended 5 April 1936, on a sum representing the estimated surplus arising in that year from the insurance transactions of the association with its members. The question for consideration was whether this surplus was assessable to income tax by virtue of the Finance Act, 1933, s 31(1):-

Held-

(i)

The definition of "company or society" in sub-sect (7) of sect 1 of the Act limited the members referred to in sub-sect (1) of that section to members of an incorporated company or society and could not include contributor-participators, in an exclusively mutual insurance scheme, who were not members of the incorporated company or society, who were the insurers.

(ii)

it was not membership or non-membership which determined immunity from or liability to tax; it was the nature of the transactions; if the transactions were of the nature of mutual insurance the resultant surplus was not taxable, whether the transactions were with members or non-members.

(iii)

"those transactions" in sect 31(1) were ex hypothesi transactions in which the element of mutuality was an integral, essential and inseparable part.

(iv)

the surplus from the transactions of the association with its members was, therefore, not assessable to income tax by virtue of s 31(1) of the Act.

Decision of the First Division of the Court of Session [1944] SC 421, affirmed.

Notes

Sect 31 (1) was passed after a series of cases had decided that a mutual insurance company was not liable to be taxed in respect of a surplus arising from transactions of purely mutual insurance between the company and its members. Its intention was to render the surplus taxable. But it is held to have failed because it assumes erroneously that transactions with non-members are taxable: this is not so where the transactions are mutual insurance. The word "members" in the sub-section does not include contributor-participators in an exclusively mutual transaction of insurance, and so far as the legislature intended the surplus in such circumstances to be taxable, the purpose fails.

For the Finance Act, 1933, s 31 (1), see Halsbury's Statutes, Vol 26, p 160.

Appeal

Appeal by the Crown from a decision of the First Division of the Court of Session, reported ([1944] SC 421.) The facts are sufficiently set out in the opinion of Lord Macmillan.

Their Lordships took time for consideration

Appeal dismissed.